“Large cities” in the EU and US, redux

I don’t understand the piece’s opening, though it has little to do with what follows. It begins:

AMERICA is full of vast, empty spaces. Europe, by contrast, seems chock-a-block with humanity, its history shaped by a lack of continental elbowroom. Ironically, Europe’s congestion partly reflects the fact that its large cities suck up relatively few people.

Moving people across cities wouldn’t change the (unweighted) average population density of the US or EU, so what does this comparison mean? Europe is going to be full of humanity because the land area of the EU is roughly half that of the continguous US (1.7m vs 3.1m square miles). Since larger cities are generally denser, the population-weighted density of Europe would rise if its large cities had higher population shares.

Never mind the elbowroom. The Economist continues:

Although America and the euro zone have similar total populations, America’s 50 largest metropolitan areas are home to 164m people, compared with just 102m in the euro area. This striking disparity has big consequences.

Differences in metropolitan populations may help explain gaps in productivity and incomes. Western Europe’s per-person GDP is 72% of America’s, on a purchasing-power-parity basis. A recent study by the McKinsey Global Institute, the consultancy’s research arm, reckons that some three-quarters of this gap can be chalked up to Europe’s relatively diminutive cities. More Americans than Europeans live in big cities: there is a particular divergence in the size of each region’s “middleweight” cities, those that teem just a little less than the likes of New York and Paris (see chart). And the premium earned by Americans in large cities relative to those in the countryside is larger than that earned by urban Europeans.

The gap in per capita GDP between the US and Europe is about 35%, according to the MGI figures in Exhibit 2. The “large city” premia in the United States and Europe of 34% and 30% are virtually the same. That means that the difference in per capita income attributable to the difference in “large city” population shares is the large city premium (~30pp) times the difference in large city population shares (22pp). The six to seven percentage points explained by this difference in population shares is at best one-fifth of the 35% gap between US and EU incomes. You can confirm this quick calculation by studying the decomposition in MGI’s Exhibit 2. Moving more people into large cities wouldn’t meaningfully reduce the US-EU per capita income gap.

Look at Exhibit 2 for yourself:

The Economist mentions the big-city population share and big-city premium components. They neglect that 53 of those 74 percentage points are strictly attributable to the difference in average income. Differences in metropolitan populations are not at the heart of the story.

After citing all the advantages of cities, the Economist considers two reasons why European cities aren’t as large as US cities: regulatory barriers and incomplete integration. While the former might matter, I put a lot of stock in the latter. As I explained in my prior post, Zipf’s law holds at the country level. Since no European state has a population close to 300 million, we should not expect any European city to approach the size of NYC or LA. Until intra-European mobility looks anything like intra-US mobility, I think we should expect Zipf’s law to hold at the country level. And since MGI used a common cutoff of population > 150,000 for defining a “large city”, it’s not at all surprising that a larger share of the US population lives in its large cities. I wrote before:

Given the UK population, increasing the fraction of UK residents who live in “large cities” with populations greater than 150,000 would require the emptying out of smaller metropolitan areas. While such migration is entirely possible, it would violate the expected city size distribution… If you know the populations of New York and London and are familiar with Zipf’s law, then it’s not at all surprising that a greater fraction of the US population is found in metropolitan areas above some common population threshold. I don’t think that tells us much about the economic mechanisms determining the role of US cities in the global economy.